The reciprocal tariffs announced by President Donald Trump last week officially took effect just hours ago at midnight Washington time, dismissing earlier speculation of a last-minute delay.

As of today, around 60 U.S. trade partners running surpluses with the United States are subject to a baseline 10% tariff. Countries such as the European Union (20%), Japan (24%), India (26%), and Vietnam (46%) are facing even steeper levies.

While most nations have refrained from an immediate response and are seeking negotiation channels, China-already hit by previous 20% tariffs and now facing an additional 34%-abandoned its restrained approach and retaliated.

Beijing announced it would impose a 34% tariff on all U.S. imports starting April 10, significantly escalating tensions. In response, Trump threatened to impose another 50% tariff on Chinese goods unless Beijing reversed its decision by Tuesday.

The threat materialized: alongside the reciprocal tariffs, the additional 50% levy has taken effect, bringing the total tariff burden on Chinese imports to 104%-essentially doubling the cost of Chinese goods for American consumers.

This move marks the highest U.S. tariff rates in over a century and raises the risk of a full-blown global trade war, should other countries choose to retaliate.

Concerns over global trade continue to rattle financial markets. Equity indices across regions declined, treasury selling accelerated, and gold extended its gains as investors sought safe-haven assets.

U.S. markets were not spared: the S&P 500 fell below the 5000 mark for the first time in a year, and the U.S. dollar continued to weaken. These market reactions are being driven by expectations that the tariffs will stoke inflation and weigh on economic growth.

Following the April 2 tariff announcement, the average effective tariff rate on U.S. imports surged from around 2% to roughly 22%. A Bloomberg analysis estimates that the economic impact could shave off nearly 3% from U.S. GDP and push inflation up by 1.5 percentage points-raising the specter of stagflation. Under such a scenario, the U.S. economy could enter a stagflationary phase within two to three years.

Still, based on Trump's previous tactics, the economic fallout could be less severe if negotiations materialize and tariffs are partially rolled back. Trump, while reiterating that he has no plans to pause the tariff rollout, hinted on Monday that some deals might still be struck-keeping hopes for diplomatic resolutions alive.

Nevertheless, Trump remains confident that tariffs will "make America rich again" and shows no signs of backing down. While it's unclear whether reciprocal tariffs will be adjusted through negotiations, Trump appears determined to move forward with sector-specific tariffs. On Tuesday, he stated that a major pharmaceutical tariff would be announced soon and reiterated plans to impose additional duties on lumber and semiconductor chips.

Trump's trade approach has drawn criticism from Wall Street, economists, and even some members of his own party, who warn of economic fallout that may include higher consumer prices and slower growth.

According to a Bloomberg survey, about 92% of economists believe the tariffs have increased the likelihood of a U.S. recession within the next 12 months. Additionally, JPMorgan's recession probability dashboard has pushed the risk up to 79%.

As recession fears mount, speculation is growing that the Federal Reserve may be forced to act more swiftly. Rate swaps are now pricing in a roughly 40% chance of a quarter-point cut by next week. Traders are also betting on four quarter-point cuts by the end of the year.

While current data points to a slowdown, the U.S. economy remains broadly stable. Fed officials have reiterated the need for greater clarity before making any policy moves, and their recent comments suggest they are increasingly prioritizing inflation risks.

Fed Governor Adriana Kugler recently stated that tariffs pose a more immediate threat to inflation than to growth. Similarly, Chicago Fed President Austan Goolsbee expressed concern that the tariffs could reignite inflationary pressures. Their remarks follow Fed Chair Jerome Powell's shift last week, where he acknowledged that the inflationary impact of tariffs may prove to be more persistent than previously believed.

As Duhani Capital Research team, we assess the Fed will wait for greater clarity before adjusting interest rates and is unlikely to pursue aggressive rate cuts unless a significant recession materializes. On the market side, if negotiations around reciprocal tariffs begin to yield results, recession fears could ease and pricing dynamics may shift. Until then, however, uncertainty is likely to remain elevated-pressuring equities, keeping the dollar weak, and sustaining flows into safe-haven assets like gold and the Japanese yen, while energy markets may also continue to face downside risks.